Align CPA Partner Compensation with Strategic Planning

When firms are small or in their early stages of evolution, the focus is necessarily on survival and production.  Management of the firm, though not unimportant, may take a back seat to bringing in business, serving and retaining clients and staff training.  So it makes sense that partner income at smaller firms is closely linked to traditional production metrics such as rainmaking, book of business and billable hours.

But as firms continue to grow, and enter their “mature” phase of evolution, more is needed from the partners than production.  How can a firm align partner compensation with strategic planning goals? Here are my suggestions:

1. Create a strategic plan.  Don’t try this on your own.  Sorry if this sounds like shameless promotion on my part, but CPA firm partners simply don’t know how to do it.
2. Adopt a management structure that includes a managing partner with broad decision-making authority, an executive committee and a COO/firm administrator.  The MP is absolutely critical because without a champion for the strategic plan, who provides guidance, coaching and mentoring to the partners on their goals, efforts to execute the strategic plan are doomed to fail.  Also, the tandem of the MP and the COO/firm administrator keeps most of the partners out of administration, a realm where partners don’t belong.  This structure will provide the support that busy client-handling partners need for them to focus on their strategic planning goals (the things the firm needs them to do).
3. Set written partner goals.  Each partner should have no more than 3 or 4 high-impact goals that help the firm achieve its vision.  Achievement of these goals should be a factor in allocating income.
4. Adopt the compensation committee approach to allocating partner income because this system provides management with the flexibility it needs to judge the extent that each partner helped the firm achieve its vision.
5. Reduce the importance of billing responsibility (commonly referred to as “book of business”) in allocating income.  This makes it easier to transfer clients away from rainmakers and senior management personnel to client handlers.  There needs to be assurance that people won’t be penalized for making these transfers.
6. Progress on strategic planning goals should be a regular agenda item at partner meetings.  In addition, every year, the firm should revisit its strategic plan to ensure that its initiatives are still valid and to freshen up the plan.  Periodic written progress reports from the MP are also a nice way to keep the spirit of the strategic plan alive throughout the entire year.
7. The compensation system should be closed rather than open.  The comp committee needs the freedom and flexibility to reward partners who achieve strategic planning goals without having to explain or justify this to other partners.